Regulators Seek Comment on Guidance for
'Non-Traditional' DB Benefits

January 29, 2007 (PLANSPONSOR.com) - The Internal
Revenue Service and the Treasury Department are asking for
public comment on how the agencies should regulate the
inclusion of certain non-traditional benefits in qualified
defined benefit plans.

align=”left”>Regulators said the input may
be used generally to allow them to prepare more specific
guidance on the types of benefits properly included in a
qualified DB plan.

align=”left”>In an IRS
notice
, the agencies said examples of benefits about which it has
concern include those that are payable only on the
involuntary termination of an employee or in other limited
circumstances that are unrelated to retirement; as well
as those that could exceed the amount of the
plan’s accrued benefit.

align=”left”>The guidance might
specifically deal with the issue of plant shutdown
benefits and similar ancillary benefits. Regulators
said that, for example, the guidance might require
that the benefit be payable as a result of an objectively
defined plant shutdown event, such as one that requires
notice under the Worker Adjustment and Retraining
Notification Act of 1988.

align=”left”>Finally, according to the
regulators, the guidance might deal with contingent
accruals and early retirement benefits. The guidance might
provide that, except for the payment of the accrued benefit
in an optional form, a retirement-type benefit is
permitted to be provided in a qualified defined benefit
plan only if the amount of the benefit is no greater than
the unreduced accrued benefit provided under the plan.

align=”left”>If these benefits are
contingent on future events that are not reasonably and
reliably predictable on an actuarial basis (such as a
participant’s death), regulators said it is difficult
to determine whether they comply with the incidental
benefit requirements. .

Also, the regulators said that benefits payable only
upon an employee’s involuntary separation from
service raise questions regarding whether the
availability of the benefits is based on conditions that
are within the employer’s control, and whether such
benefits circumvent the vesting and antibackloading
protections of Â§ 411, and the definitely determinable
benefits requirement of Â§ 401(a).